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Opinion: Energy improvement financing laws a win for customers and the environment

  

The traditional finance industry in Missouri has made it a legislative priority to dismantle the laws in Missouri that enable greater customer access to money to help with energy improvements to their home or business. Known as Property Assessed Clean Energy, or PACE, these laws were designed to fill in the gaps for customers who were unable to access traditional loans. Yet, the lobbyists hired by the banks — and the lawmakers doing their bidding — argue that PACE is bad for customers. This argument is the worst form of gaslighting. 

Before getting back to opposition to PACE, we need to talk about what it is and how it works. Let’s say you want to make energy improvements to your home or business, a replacement furnace during a cold snap like last February, or air conditioning in the sweltering summer. An energy analysis is in place for any improvements to be financed by PACE to ensure there will be a net economic benefit to the loan. It is important to note this requirement of the law — the net economic benefit — is something rare and unique to financing laws. This requires that the customer will see an economic benefit from the improvements made. This is not a requirement of banks that offer a home equity line of credit (HELOC) or a second mortgage for other purposes. 

The improvements are made and the PACE regional district — similar to other political subdivisions — provides the money. The homeowner or business pays the money back every year as a part of the tax bill issued by the local collector. 

Missouri is one of the few states that allows commercial and residential customers to take advantage of PACE. This law was passed in 2010 with broad, bipartisan support. Since then, thousands of Missourians have benefitted from the PACE lending and the program has contributed millions of dollars in improvements. This value is not merely realized by improved property values but by lowering monthly utility bills. More importantly, the energy efficiency measures PACE finances help reduce not only a customer’s carbon footprint but also help relieve stress on the grid. This also provides indirect benefits to your fellow ratepayers. 

Opponents of PACE say the interest rates are too high and the benefits are too low. PACE provides many more forms of consumer protections than other forms of home improvement financing including contractor training and oversight and numerous disclosures, confirmation of terms calls, and a commitment that funds are never disbursed until a certificate of completion is signed by the homeowner indicating their satisfaction. Other forms of home improvement financing have little to no contractor oversight at all.

Some opponents of PACE have argued that the interest rates are too high and that homeowners would be better off getting a credit card from Lowe’s or Home Depot. But PACE is more affordable than HELOCs or credit cards by having lower monthly payments. Further, an average credit card interest rate for a homeowner with a “fair” credit score — typically what lower to moderate-income households would have — is more than 22 percent. Over 20 years, $15,000 in project financing on a credit card like this with paying minimum monthly payments (still higher than the PACE monthly payments) would generate more than $50,000 in interest payments alone. 

Let’s not forget about the fact that many low-income customers turn to payday loans to combat high energy bills or to deal with energy situations like a heater going out. Under generous circumstances, payday loan lenders charge 35 percent interest to customers in a financial crunch. Yet, opposing payday loan lenders and their usury fee arrangements have fallen out of vogue the past few years. While some complain that a 7-10 percent interest rate is too high for clean energy projects, nothing is said about charging three to four times that amount for a payday loan that might have to address the same concerns. 

Finally, there is the matter of how race plays into how traditional lenders like banks offer loans. In his defense of PACE, the President of the NAACP recently spoke to this very issue:

“Communities of color are disproportionately denied for lending products such as second mortgages or home equity lines of credit because credit scores include latent discriminatory filters. Further, interest rates are higher for borrowers with lower credit scores; and if credit scoring has biases against communities of color, then the unwarranted higher cost of capital acts as a redline tax. Black families pay more because of systemic biases in traditional lending.”

When lawmakers talk about access to clean energy financing, they must factor in the history of how some customers, because of who they are, get literally left out in the cold. 

The spin against PACE is that it is bad for customers. But do not let this message get in the way of the facts. PACE is good for customers but bad for banks, and that’s why banks want it gone.